Snap Shoots Past Q4 Estimates but Faces Stock Challenges
Snap (NYSE: SNAP) recently announced its Q4 results, surpassing expectations for both revenue and earnings. The company posted revenue of $1.56 billion and adjusted earnings of $0.16 per share, compared to analysts’ forecasts of $1.55 billion and $0.14. However, its outlook for the next quarter disappointed investors, leading to a drop in SNAP stock following the announcement.
Since the start of 2024, SNAP stock has seen a decline of -37%, significantly underperforming the S&P 500 index, which has risen by 27%. This volatility in SNAP stock has heightened concerns, particularly with ongoing discussions about a ban on TikTok operations in the U.S. Those seeking a steadier investment option might consider the High-Quality portfolio, which has produced over 91% returns since its inception, outperforming the S&P 500.
A Closer Look at Snap’s Q4 Results
Snap’s revenue of $1.56 billion in Q4 represented a 14% year-over-year increase, driven by strong growth in its paid subscriber base. The number of Snapchat+ members reached 14 million, up from 12 million in Q3. Daily active users (DAU) rose by 9% to 453 million, with average revenue per user (ARPU) climbing 4.6% year-over-year to $3.44. DAU growth surpassed expectations, while ARPU met projections. Snap’s adjusted EBITDA margin increased by 600 basis points to 18% in Q4’24, leading to adjusted earnings doubling to $0.16 per share from $0.08 a year earlier.
For the upcoming first quarter, Snap’s guidance suggests revenue of approximately $1.34 billion, just above analysts’ expectations of $1.33 billion. However, its projected adjusted earnings of $57.5 million fell short of the consensus estimate of $78.5 million.
Implications for SNAP Stock
Despite SNAP’s positive fourth-quarter performance, the stock dropped by 8% after the announcement, primarily due to the company’s cautious first-quarter outlook. Looking back, the trends for SNAP stock over the years have not been stable, exhibiting far more volatility compared to the S&P 500 index.
In stark contrast, the Trefis High Quality (HQ) Portfolio, which includes 30 stocks, has shown much less volatility and has consistently outperformed the S&P 500 in the past four years. The stocks in the HQ Portfolio have delivered better returns with lower risks compared to the index, making it a potentially safer investment option.
As uncertainties loom in the macroeconomic landscape, including discussions on interest rate cuts and political changes, there’s concern that SNAP might experience a repeat of its underperformance, as seen in 2021, 2022, and 2024. Nonetheless, there’s speculation about a potential recovery. Our analysis estimates that Snap’s valuation is around $13, indicating more than 20% upside from its current price of about $11. This forecast is based on a valuation of 4x trailing revenues, consistent with the stock’s average price-to-sales ratio over the last three years.
While SNAP stock shows strong growth potential, it’s worth comparing how Snapchat’s Peers perform against key metrics. Other useful comparisons across industries can be found at Peer Comparisons.
| Returns | Feb 2025 MTD [1] |
Since start of 2024 [1] |
2017-25 Total [2] |
| SNAP Return | -6% | -37% | -27% |
| S&P 500 Return | 0% | 27% | 171% |
| Trefis Reinforced Value Portfolio | 0% | 23% | 796% |
[1] Returns as of 2/6/2025
[2] Cumulative total returns since the end of 2016
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
